Gokaldas Exports hits 4-month high, rallies 15% in one week post Q3 results

Once FTA with the UK happens, India can potentially see USD1bn of exports from this region

Shares of Gokaldas Exports hit four-month high of Rs 419.90 as they rallied 8 per cent on the BSE in Thursday's intra-day trade.
In the past one week, the stock of the garments and apparels manufacturer has surged 15 per cent after the company maintained double digit Ebitda (earnings before interest, taxes, depreciation, and amortization) margin for a sixth consecutive quarter in Q3FY23, at 12.2 per cent, through various cost saving initiatives despite weak sales.

Amid slowdown in India's overall textile exports, due to slackening of demand in key export markets, revenue for Gokaldas Exports came in flattish year-on-year (YoY), and down 9 per cent quarter-on-quarter (QoQ), to Rs 518.9 core. The company had reported robust sales growth in the past successive quarters. The company's profit after tax (PAT) jumped 34.8 per cent YoY, but down 11.4 per cent QoQ to Rs 40.60 crore.

The company invested Rs 80 crore during the last nine months (April to December) of the year upon modernization and upgrdation of machinery, new project expansion. These investments are expected to increase revenue and improve operational productivity in the years ahead, the management said.

"We view the long-term macroeconomic factors are favourable for the growth of the business. With this in mind, we are progressing well with our capex plan. The unit in Madhya Pradesh is expected to commence commercial production in Q1FY24 and our knits project in Tamil Nadu too is progressing well, setting the stage for a strong future," the management said.

The recent development in the macro-economic factors signals that key textile commodities like Cotton and Crude oil have started to decline (by 46 per cent and 35 per cent, respectively from the recent high) easing price pressure on the textile value chain. Further, there is evidence of decongestion of the supply chain. Freight costs also may continue to decline.

Analysts at Emkay Global Financial Services maintain a 'buy' on Gokaldas with an unchanged December 2023 target price of Rs 575/share, based on 18x PER.

Globally, most garment-consuming markets are passing through uncertain times. Under such a scenario, Gokaldas posted flat YoY sales for Q3FY23, but higher Ebitda margin resulted in ~7 per cent growth in Ebitda. This along with increased other income and lower tax led to PAT growth of 35 per cent, the brokerage firm said.

Bangladesh and China exports $3 billion/$4 billion to UK currently. Once FTA with the UK happens, India can potentially see $1 billion of exports from this region. Indian textile players can compete with Chinese players on cost, while a shorter lead time with respect to Bangladesh gives an edge to Indian players, the brokerage firm said.